Advantages and drawbacks to doing business as a Texas limited liability company (LLC)

A limited liability company is a popular choice for Texas small business owners. It is more expensive and complex to set up than either a sole proprietorship or partnership, but it provides the business owners with limited liability and management and tax flexibility. An LLC combines the characteristics of a partnership with the characteristics of a corporation. A Conroe, Texas business attorney can help you explore whether an LLC is a good choice for your business.

Owners

The owners of an LLC are called members. An LLC can be owned by a single individual. Therefore, it is an option for sole business owners who want limited liability. It can also be owned by multiple individuals and even by other business entities

Setting up an LLC

To establish a Texas limited liability company, you must file a Certificate of Formation with the Secretary of State and pay a filing fee. In addition, an LLC should have a written operating agreement that spells out the rights and responsibilities of members. Just like a partnership agreement, an LLC operating agreement should cover how the members will manage the business, what capital and services each will contribute, how profits and losses will be divided, and how members will be compensated. The operating agreement should also contain buy-sell provisions that provide what will happen to the business when a member dies or wants to sell his or her interest.

If the name of your LLC does not include the last name of all of the members, you will need to register the name as an “assumed business name” with the county clerk in the county where the business is located. If the business does not have a business premises, you will need to register in every county in which the business operates.

Management of the LLC

An LLC can be managed by either one or more of its members or by nonmember-managers.

Personal liability

LLCs provide limited liability for their members even if they actively participate in managing the business. As a member, only your capital investment in the business is at risk for liabilities of the business, unless you personally guarantee any business debts. In other words, if the business owes debts, defaults on a loan, or an employee or other member injures someone, a creditor cannot take your assets.

However, as a practical matter, banks and other lenders may require a personal guarantee before they will loan the business money. You also will still be personally liable for any torts you commit (e.g., you injure someone while driving on company business).

Chris Peterson is an attorney and the owner and founder of Peterson Law Group, a Texas law firm with offices in Bryan/College Station and Kingwood. He mainly practices in the areas of Estate Planning and Business Planning. Chris is also a Certified Estate Planner. Besides his law practice, Chris is a serial entrepreneur and community volunteer. He is known for his cutting edge law practice that utilizes technology to deliver efficient, excellent work.

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